2017 Economic Development Deal Of The Year Gold Award: Wisconsin

The Wisconsin Economic Development Corp. has snared the Gold Award as Business Facilities’ 2017 Economic Development Deal of the Year for the $10.7-billion Foxconn LCD production facility project.

“With an incredible bounty of 13,000 direct new jobs in the next five years and a world-class, 20-million-square-foot production facility, our judges unanimously agreed that the Foxconn project deserved our top honor as the 2017 Deal of the Year,” BF Editor in Chief Jack Rogers said.

Foxconn Technology Group Chairman Terry Gou, seated to the left, and Gov. Scott Walker signed a contract in November for Foxconn to build a $10.7 billion LCD flat-panel production facility that will employ 13,000 workers. (Photo: Twitter.com)

In October, Foxconn (Hon Hai Precision Industry Co., Ltd) confirmed it would build North America’s first 10.5 TFT-LCD flat-screen panel production facility in Mount Pleasant, WI. With 13,000 jobs and a capital investment of more than $10 billion, Foxconn’s investment in Wisconsin is by far the state’s largest economic development project and one of the largest greenfield investments by a foreign-based company in U.S. history, as measured by jobs.

Foxconn is projecting that up to 150 suppliers will locate in close proximity to the new plant, creating more than 35,000 jobs throughout Wisconsin (including direct, indirect and induced jobs). An estimated 10,000 construction workers will be employed to build the 20-million-square-foot facility, which is to be completed by the end of 2020. The mammoth floor space at the new Foxconn campus will be large enough to hold 11 Lambeau Fields (legendary home of the Green Bay Packers football team). It will be located in Southeastern Wisconsin. Foxconn’s investment will create the first liquid crystal display (LCD) manufacturing facility in North America and the only one globally that is not located in Asia.

Taiwan-based Foxconn, a major supplier to Apple (producing iPhones in China), received an estimated $3 billion in incentives from Wisconsin, including tax credits and infrastructure upgrades. When the deal was announced, Gov. Scott Walker declared the project would give Wisconsin its own version of Silicon Valley; jobs at the new Foxconn plant are expected to pay about $53,000 a year.

Gov. Walker and Foxconn Founder and CEO Terry Gou signed a Memorandum of Understanding (MOU) at the Milwaukee Art Museum on July 27, 2017. The MOU was also signed by Wisconsin Economic Development Corporation CEO Mark Hogan and Special Assistant to the Chairman and CEO of Foxconn Louis K. Woo.

A TRANSFORMATIVE PROJECT FOR STATE, REGIONAL, LOCAL ECONOMIES

The Foxconn project will truly be transformative for the Village of Mount Pleasant, Racine County, southeastern Wisconsin and the entire state.

The current population in the Village of Mount Pleasant is 26,360. The addition of 13,000 new, well-paid positions (base wage: $53,875) will have a dramatic effect on the local as well as state economy. According to an economic study conducted by Ernst & Young (EY) using IMPLAN economic analysis software, the direct creation of 13,000 new positions over five years will support at least 35,245 jobs throughout Wisconsin (including direct, indirect and induced jobs). The total labor income created by this project will exceed $2 billion annually once Foxconn is fully operational. The analysis estimates that Foxconn employees will pay roughly $65 million per year in state and local taxes on their incomes, purchases and properties. An increase in tax revenue of this magnitude will have a lasting impact on local and state budgets for years.

In addition, due to the high sensitivity of products required to produce TFT-LCD panels, Foxconn expects roughly 150 suppliers to locate in close proximity to the company’s production facility. This requirement will drastically change the industrial environment in Racine and surrounding counties, resulting in higher land values, an increase in employment as described above and an increase in local business revenue.

Foxconn is expected to purchase $4.26 billion of non-labor operating inputs annually, an estimated one-third of which ($1.4 billion worth) will be sourced from within Wisconsin.

Constructing a 20-million-square-foot facility will cost roughly $5 billion. Completing the project on time will require 10,000 construction workers per year for five years, making a significant local economic impact on the construction industry. According to EY’s economic analysis, direct spending on construction will support an average of 16,205 construction and related jobs (direct, indirect and induced) over a four-year period; will support a one-time shock of $9.34 billion in sales for Wisconsin businesses (over four years); will create $2.44 billion in direct labor income and will generate nearly $500 million in state and local tax revenue for Wisconsin state and local governments.

Of that $500 million, an estimated $154 million will be state and local sales taxes on construction materials. In addition to the construction costs of the facility, community infrastructure, housing, commercial development and industrial supply chain development will be required, creating additional construction opportunities in the region.

The successful attraction of a highly innovative company like Foxconn will help Wisconsin transform its workforce. The local community college, Gateway Technical College, already is working on a major expansion and curriculum updates to meet the future needs of Foxconn’s advanced manufacturing process. This new curriculum will serve as an example to the state’s other technical schools as they prepare the WI workforce for advanced manufacturing jobs.

WISCONSIN’S NEW SILICON VALLEY

The decision to construct North America’s first TFT LCD facility will create an entirely new industry within Wisconsin. This is exactly why this project is so transformative.

Wisconsin currently has primary suppliers that will be able to provide services and products to the new facility, but several new primary suppliers will be required to move to Wisconsin. These primary suppliers will relocate within direct proximity to Foxconn to ensure just-in-time delivery. Secondary suppliers will be located throughout the state. Wisconsin already is working with Foxconn and companies already based in Wisconsin to ensure that Foxconn utilizes as many existing suppliers within the state as possible.

Foxconn anticipates starting assembly production before the end of 2017. They have leased an existing facility near the future home of their 20-million-square-foot facility. Construction will begin in 2018, and is expected to be completed by the end of 2020. Investment and job creation projections are expected to be fulfilled by the end of 2022.

Wisconsin’s final contract with Foxconn added new job requirements on an up to $3 billion subsidy package (the largest incentive package to date offered to a foreign firm investing in the U.S.) for the Racine County flat-screen plant and drawing a personal guarantee of up to $500 million from Gou, one of the world’s richest men.

Wisconsin Economic Development Corp. head Mark Hogan said the Walker administration had always planned on tougher job requirements when it agreed to the deal. Hogan touted the personal guarantee from Gou as “highly unusual.”

“It really speaks to the level of commitment and confidence that he has that this is going to be a great investment not just for him but for the state of Wisconsin,” Hogan said of Gou.

According a November report in the Milwaukee Business Journal, draft terms of Wisconsin’s contract with Foxconn include the following requirements:

It requires minimum numbers of jobs for Foxconn to receive up to $2.85 billion in tax credits that state taxpayers would likely pay out in cash. Unlike an early version of the deal, the company would have to meet minimum jobs numbers not only to get tax credits for spending on worker salaries but also to earn tax credits on its capital investment in the plant.

To receive credits, Foxconn would essentially have to hire a sharply escalating number of workers, starting with at least 260 next year and rising to at least 5,200 in 2022 and at least 10,400 by 2027. Foxconn would have to earn credits each year by meeting or beating these targets.

To get the full tax credits and an additional $150 million in sales tax savings, Foxconn would have to spend at least $9 billion on the plant and essentially employ 13,000 workers from 2022 through 2032.

The company would have to pay workers at least $30,000 a year for Foxconn to receive the credits. The average salary of the workers would also have to be $53,900 for Foxconn to receive the tax credits.

It requires Foxconn to hire an outside accounting firm chosen by WEDC to verify its spending on the plant and on workers’ salaries.

It allows the state to claw back up to 100 percent of its tax credit awards to Foxconn if the company lies to the state, moves the plant or shuts it down. Starting in 2023, the state could claw back up to $500 million if the company doesn’t meet a minimum jobs threshold.

Foxconn’s parent company, Hon Hai Precision Industry Co., will be responsible for 75 percent of clawback payments and Gou will be responsible for 25 percent through a private company he largely owns.

WEDC officials have publicly expressed confidence that Hon Hai—one of the world’s largest companies—would be on the hook for the potential clawbacks no matter what.

The Foxconn project also reportedly includes more than $700 million in local incentives for Foxconn. If the project goes well, it could create 22,000 jobs outside the plant at suppliers, restaurants and other businesses in southeastern Wisconsin.

Foxconn has already taken space in a large industrial building in Racine County, signing a lease for 13315 Globe Drive in Mount Pleasant. That is the site of a 156,000-square-foot building recently developed by Opus Group just east of I-94 and south of Highway 20 in the Mount Pleasant Business Park.

Wisconsin has created a marketplace website to allow existing business to list their services, populating a database that Foxconn procurement managers can easily navigate to find local suppliers.

Eighteen major firms, including new arrival Foxconn, will meet with emerging companies at the 2018 Wisconsin Tech Summit, to be held March 19 at the GE Healthcare Institute in Waukesha. Participating major firms are Accuray, American Family Insurance, AT&T, Aurora Health Care, BloodCenter of Wisconsin, Dedicated Computing, DXC Technology, Exact Sciences, Foxconn Technology Group, GE Healthcare, Johnson Controls, Marshfield Clinic Health System, Northwestern Mutual, Promega, Rockwell Automation, TASC, WEA Trust and WIPFLi. Summit objectives for the major companies are summarized at wistechsummit.com.

These firms will be able to hear from emerging companies with innovative products or services tied to areas such as Internet of Things, imaging, data storage, blockchain, software and data analytics in sectors ranging from health care to information systems, and from power electronics to telecommunications.

“The evolving information needs of major companies may require strategic partnerships with innovative young companies,” said Tom Still, president of the Wisconsin Technology Council. “Potential business relationships might include contracting for research and development, becoming part of a larger supply chain, and pursuing investment or acquisition strategies.”

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